Survey: Loss of state tax credit hurt donations

It's long been held that tax credits provide some donors with incentives to give — or to give more.

Now nonprofits around the state believe they have numbers to prove that removing one of the state's financial carrots has made giving less appealing to Michigan taxpayers.

Many say individual giving to the state's food banks/rescues, homeless shelters and community foundations dropped in the wake of the 2012 elimination of state tax credits for gifts to those organizations as part of Michigan's recent tax reform.

The tax reform package eliminated charitable tax credits for donations to those types of nonprofits — and to public institutions such as public broadcasting stations, higher education facilities, colleges, universities, university fundraising groups, public libraries, museums and donations of publicly displayed art work.

Previously, the Michigan tax code provided a 50 percent credit of up to $100 for individuals on a $200 gift, a credit of up to $200 for married couples on a $400 gift and a credit of up to $5,000 for business taxpayers or 10 percent of their Michigan business tax liability, whichever was less.

Many nonprofits and associations representing them have taken a look at the initial impact of the state's lost charitable tax credits on gifts of $200, $400 and lesser amounts, since those were common categories of gifts donated with taxpayers' intentions of claiming the state tax credits.

According to a survey of 31 Michigan community foundations commissioned by the Council of Michigan Foundations, the state's community foundations saw a 27.5 percent drop in donations of $400 or less following the loss of the state credit last year.

Those losses totaled more than $1.12 million for 27 community foundations that quantified the drop in those gifts last year, which was just half of the 55 community foundations initially contacted by the Johnson Center on Philanthropy at Grand Valley State University in Grand Rapids for the study.

Donations of $200 and $400, the maximum gifts individuals and couples could give to get half back as a credit on their taxes, dropped 28 percent and 51 percent, respectively, according to the study.

The loss of the community foundation tax credit has meant the loss of a tool that helped introduce all Michiganders to the idea of building permanent, community philanthropy, said Council of Michigan Foundations President Rob Collier.

The credit also helped spur nonprofits across the state to begin building permanent endowment funds housed at their local community foundations and grow them by mentioning the tax credits for such gifts as part of their annual appeals to donors, Collier said.

Those permanent endowments contribute to the stability of the nonprofit sector by providing a sustainable source of revenue, he said.

Many groups also used the tax credit to create permanent endowed scholarship funds, and anecdotal evidence indicates the loss of the credit is impacting the ability to grow those funds, Collier said.

Tax policy doesn't make people give or not give, but it does impact how much people give, he said.

"With the loss of the credits, a lot of people cut their giving in half ... the research confirms that tax policy does impact how much people will give."

The Lansing-based Food Bank Council of Michigan did a similar survey of its members, asking them to weigh in on the percentage change in $200 and $400 donations during the state's fiscal 2012 ended Sept. 30, 2012.

The council is drilling down further to come up with the dollar amounts of the declines, she said.

Adding to the effects of the loss of the tax credit was the looming fiscal cliff issue last year, El-Amin said.

With that issue and this fall's government shutdown, "donors became more cautious with their donations, so it's hard to separate the impact related only to the loss of the tax credits," she said.

The Food Bank Council plans to look at the impact of the loss of the state tax credit over the next five years, she said, projecting that food banks and rescues will see a steady decline in gifts of those amounts.

"We're hopeful the current administration would take a second look," El-Amin said.

"I think they made this as a unilateral decision with the thought that there were too many tax credits, but they didn't understand the impact it would have.

"We weren't able to articulate it well enough before it was taken away."

Public institutions such as the Detroit Institute of Arts, Detroit Public Television and WDET 101.9 FM said they couldn't quantify any impact from the loss of the state tax credits, especially because giving for some of them has gone up over the same period.

The Coalition on Temporary Shelter in Detroit saw a decline of $50,000 in gifts of $200 and $400 in fiscal 2012 and again in fiscal 2013 ended June 30, CEO Cheryl Johnson said in an email.